Mixed Result for M&S

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The Upper Tribunal has disallowed some of M&S group relief claims from its German and Belgian subsidiaries by refusing to extend statutory time limits. However, it’s not all bad news.

Marks & Spencer’s long-running battle to claim group relief for losses suffered by its former German and Belgian subsidiaries passed another milestone with the release of the Upper Tribunal’s decision. In December 2005, the ECJ ruled that group relief should be available in respect of the subsidiaries’ losses provided there were no possibilities of using them. Since then the UK courts have been considering when the ‘no possibilities’ test is applied, how the losses available for relief should be computed and the administrative process of making claims.

Whilst the ruling is largely good news for M&S, it was not a clear sweep, with some of its group relief claims disallowed.

The Upper Tribunal refused M&S’ claims made under the ‘pay and file’ system for corporation tax, which predated corporation tax self-assessment. Unlike self-assessment where the time limits for making claims remain open whilst there is an ongoing enquiry into a tax return, the pay and file system set strict time limits for making group relief claims.

Although M&S had submitted group relief claims within the pay and file time limit, they failed because they did not meet the ‘no possibilities test’ as at the time the claim was made, as the subsidiaries had not been put into liquidation. This is not surprising since the ‘no possibilities’ test did not exist until the ECJ’s ruling in December 2005 – when the earliest claims were already out of time. After the EJC’s ruling, M&S tried to protect its position by liquidating the companies and then making further group relief claims for the same losses. Although the Upper Tribunal accepted that successive group relief claims for the same losses could be made, claims would only be valid if they were within statutory time limits. This stymied M&S and their claims failed. It overruled the First Tier Tribunal, which had said that under the EU principle of effectiveness the time limits should be extended to allow M&S to exercise the Community rights it had established.

On the positive side, the group relief claims made under self-assessment were valid. Furthermore, the Upper Tribunal rejected HMRC’s argument that if a single Euro of the losses could be used, no group relief should be given for the remaining losses.

The case will doubtless be appealed.

Other companies which have lodged UK group relief claims for the losses of EEA resident subsidiaries need to double check that the ‘no possibilities’ test was met at the time the claims were made, and if necessary make new ones when the test is met. They should also check that the way in which the losses have been calculated is consistent with the Upper Tribunal’s ruling.

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National contact

Rosemary Blundell

Director National Tax
+44 (0)115 943 5357

Mixed Result for M&S - Mazars - United Kingdom

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